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| Issued April 2024 |
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| In this newsletter... |
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Benchtest 03.2024 – the resource curse, rule amendments without tax approval, risk benefits and PI cover and more... |
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IMPORTANT NOTES AND REMINDERS |
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NAMFISA levies
- Funds with April 2024 year-ends must submit their 2nd levy returns and payments by 24 May 2024;
- Funds with October 2024 year-ends must submit their 1st levy returns and payments by 24 May 2024;
- and funds with April 2023 year-ends must submit their final levy returns and payments by 30 April 2024..
Repo rate unchanged in April
After its April meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%.
Registered service providers
Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
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Retirement calculator
Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here...
If you need help with your financial planning, get in touch with RFS Financial Advisers (Pty) Ltd.
- Annemarie Nel (tel 061-446 073)
- Christina Linge (061-446 075)
Toolbox for trustees
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
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| IN THIS NEWSLETTER... |
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In this newsletter, we address the following topics:
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In 'Tilman Friedrich's industry forum' we present...
- Monthly review of portfolio performance – 31 March 2024
- The consequence of rule amendments lacking tax approval
- Risk benefits and PI cover
In Compliments, read...
- A compliment from the Head: Group Remuneration and Benefits of a large company
In ‘Benchmark: A note from Günter Pfeifer, read about…
- When is a beneficiary nomination form valid?
- The consequences of moving insured benefits out of the fund
In 'News from RFS', read about...
- Long service complements our business philosophy
- The Retirement Compass
- RFS launches RFS Financial Advisers
- RFS holds its biannual family day
RFS sponsors participants in SA swimming championships
- RFS awards top performers at Namcol
In news from NAMFISA, read about...
- First pension funds industry meeting of 2024
- Industry comments on proposed changes to the PFA investment regulation
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In ‘News from RFIN”, read about …
In 'Legal snippets', read about...
- Is a death benefit payable for an incorrectly enrolled member?
In 'Snippets for the pension funds industry,' read about...
- The consequences of failing to pay retirement fund contributions
- What are some of the risks in the fixed-income market?
In ‘Snippets of general interest', read about...
- When to sell a stock
- Storytelling that drives bold change
And make a point of reading what our clients say about us in the ‘Compliments’ section. It should give you a good appreciation of who and what we are!
As always, your comment is welcome, so open a new mail and drop us a note!
Regards
Tilman Friedrich |
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| TILMAN FRIEDRICH'S INDUSTRY FORUM |
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Monthly Review of Portfolio Performance
to 31 March 2024 |
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In March 2024, the average prudential balanced portfolio returned 1.3% (February 2024: 0.7%). The top performer is Allan Gray Balanced Fund, with 2.0%, while Lebela Balanced Fund, with 0.5%, takes the bottom spot. Namibia Coronation Capital Plus Fund takes the top spot for the three months, outperforming the ‘average’ by roughly 1.7%. Lebela Balanced Fund underperformed the ‘average’ by 1.6% on the other end of the scale. Note that these returns are before (gross of) asset management fees.
The Monthly Review of Portfolio Performance to 31 March 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
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| Namibia must avoid contracting the ‘Dutch Disease’ |
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I was recently invited to M&G Investments Leonard Krüger’s insightful presentation on ‘Resource Discovery: best practice and avoiding the resource curse’. Yes, I am sure many readers also noticed how many media commentators are already counting their blessings and awaiting the new dawn in great anticipation of securing personal riches. Leonard’s talk aimed to put our newfound riches into perspective to moderate exaggerated expectations and warn that things can go horribly wrong, as they have in many other countries, if Namibia does not promptly establish sustainable resource exploitation policies.
Leonard pointed out that while Namibia is one of the world’s ‘hottest exploration plays’, there were many other significant discoveries worldwide in 2022 and 2023, notably Guyana, Iran, and Namibia only in third place. Namibia’s resource represents less than 1% of the global fossil fuel resource. Namibia is competing against many other countries and faces the challenge that its resource is in ultra-deep waters on the edge of what can be exploited economically with current technology, making it very expensive for investors.
Read a summary of Leonard’s interesting talk and our view on global investment markets in the Monthly Review of Portfolio Performance to 31 March 2024
Download the Monthly Review, here... |
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| The consequence of rule amendments lacking tax approval |
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The Income Tax Act offers the most valuable tax benefits to retirement fund arrangements, not offered to any other investment product. Firstly, while employer contributions would be tax deductible as an expense incurred in producing income, the same cannot be said about employee contributions. While an employee generally cannot deduct any expenses from his salary, pension fund contributions are explicitly tax deductible. Secondly, any person whose endeavours are intended to generate an income must pay tax on his taxable income determined per the Income Tax Act prescriptions. In contrast, a pension fund is tax-exempt despite endeavouring to generate investment income for its members. Lastly, in the case of pension funds, the general tax principle of taxing any income derived from tax-deductible expenditure, and vice-versa, is diluted. When a pension fund returns an employee’s tax-exempt contributions with tax-exempt investment returns and sometimes insurance policy proceeds funded from the employer’s tax-deducted pension fund contributions, only a portion of the benefit is taxable.
These income tax incentives for retirement funds only apply if the fund meets certain conditions in the Act. Most importantly, NAMFISA must have registered it, and NamRA must have approved it. Furthermore, NamRA must be notified of all rule amendments, and the fund must have complied with its rules. Notably, under the Income Tax Act, the NamRA approval of a fund is only valid for the year of assessment. Legally, NamRA must re-approve a fund for every year of assessment. Although this is not NamRA’s practice, it can invoke the practice at any time.
If a fund has not received NamRA’s confirmation of a rule amendment submitted for approval, it cannot be applied from a tax perspective. However, once NAMFISA registered a rule amendment, the fund must apply it from a legal perspective. Effectively, NamRA would argue that, by applying an unapproved amendment, the fund has not complied with the NamRA-approved rules. From a tax perspective, the fund does not meet the requirements of the Income Tax Act and is not entitled to the tax benefits under the Act. |
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| Risk benefits and PI Cover |
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The principles of good governance prescribe that trustees must manage their fund’s risks. It entails their identification, rating regarding probability and impact and any action the trustees will take to manage the risks. Trustees would either accept, reduce, avoid or transfer the risk. Because the majority of funds in Namibia are small, they cannot ‘self-insure’ any risk and must transfer it to a service or product provider or an insurance company. In the final analysis, the fund will bear the cost of the risk either in the fees the service or product provider would charge or through an insurance premium. Transferring a risk means the fund smoothes its cost and avoids facing an unexpected, costly, and unaffordable incident in a particular year.
Unfortunately, for most funds in Namibia, NAMFISA adopted a position on the Pension Funds Act ridiculing a 30-year industry practice of restricting risk benefits to the amount the insurer pays. This practice transferred the risk of the insurance company restricting the payment, from the fund to the member who presents the risk. Independent of their size, funds must now remove all terms and conditions concerning their risk benefits from their rules. As a result, where an insurance company would limit or not admit a claim because of its terms, conditions and restrictions, the fund has to stand in for any shortfall between what the rules offer and what the insurer pays.
To avoid exposure to such unforeseeable risks over which they have no control, funds are now transferring the risk to the employer. Because the employer’s employment terms and conditions fall outside NAMFISA’s jurisdiction, it can re-impose the insurer’s terms, conditions and exclusions by mirroring them in its employment contract. Of course, in real life, employers might have a moral challenge not paying out an unlimited benefit to its employee.
Because death benefits are typically of high value and the insured portion comprises a significant component, they are probably the most important single consideration for setting indemnity cover levels. A typical formula for determining the cover level required suggests it should be calculated as the greater of:
- Two times the largest death benefit and
- 2% of assets plus 10% of annual contributions to the fund.
Rationally, suppose the insured death benefit is transferred from a fund to its sponsoring employer as the new NAMFISA requirements dictate. In that case, the insured portion of the largest potential death benefit can be removed from the calculation, which would result in a lower cover requirement. Consider this practical application of the principle.
Assumptions:
- Highest salary is N$1.4 million p.a. The member is entitled to a death benefit of 5 times annual salary, i.e., N$7 million. The member’s share is N$ 7 million. His death benefit is thus N$14 million.
- The funds assets are N$250 million; 2% is N$5 million. The annual payroll is N$ 120 million; 10% is N$12 million and the total of these two amounts is N$17 million.
The insured benefit of N$7 million in 1 represents about 40% of the N$17 million in 2 (the greater of 1 and 2). Consequently, the indemnity cover level can be reduced by 40%. |
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| COMPLIMENT |
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Compliment from the Head: Group Remuneration and Benefits of a large company
March 2024
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“For sure a huge pleasure to work with your team. Always hands-on and professional.”
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Read more comments and compliments from our clients, here...
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| BENCHMARK: A NOTE FROM GÜNTER PFEIFER |
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| When is a beneficiary nomination form valid? |
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When a member passes away, the fund’s trustees have the onerous duty to distribute the member’s death benefit to his dependants and nominees. Dependency is a factual question and could become subjective. If a person was dependent on the deceased member at the date of death, the trustees are obliged to consider the dependant’s needs vis-à-vis all other dependents. Whether a person is a nominee is an objective, legal question.
Under the Pension Funds Act (PFA), section 37C(b), a valid beneficiary nomination requires that the fund member designates the nominee in writing to the fund. Where the fund did not receive a nomination from the deceased member designating dependants, the PFA’s requirement is not met, and no person has a legal claim as a nominee.
Section 37C(b) prescribes that if the trustees cannot trace any dependants within twelve months, they must award the deceased member’s death benefit as per the member’s nomination form.
Section 37C(c) prescribes that if the trustees traced dependants and the deceased member nominated beneficiaries, they must “…pay the death benefit or such portion thereof to such dependant or nominee in such proportions as the person managing the business of the fund may deem equitable,” meaning the trustees (“the person managing the business of the fund”) must apply their unfettered discretion.
When an employer transfers its pension arrangement from Fund A to Fund B through a section 14 procedure, all nomination forms its members completed in writing and submitted to Fund A are invalid in Fund B. The trustees of Fund B cannot use the nomination form submitted to Fund B to award any portion of the death benefit to a non-dependant nominee. If there were only valid, non-dependent nominees, section 37C(b) directs that the benefit must be paid to the deceased member’s estate. Suppose the deceased member only nominated persons in writing to Fund A, and there are dependants. In that case, the trustees must ignore the nominated persons and pay the benefit to the deceased member’s dependants.
Fund members often submit a completed nomination form reflecting dependant and non-dependent persons. A nomination form to Fund A could, therefore, still be a valuable source for Fund B trustees to identify dependants. |
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| The consequences of moving insured benefits out of the fund |
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Most retirement funds in Namibia (stand-alone and umbrella funds) provide ancillary benefits to their members to cover events like death and disability and sometimes dread disease or other risk benefits. These benefits would be paid over and above the member’s accumulated fund credit (retirement savings) in the retirement fund. The benefit used to be insured by an insurance company. Most retirement funds in Namibia are defined contribution funds, so they would not hold large reserves to cover insured benefits. When a fund member passes away, the death benefit payments made to beneficiaries and dependants have a huge positive social impact. Similarly, disability payments assist the member to fund his cost of living.
Where the fund provides the insured benefits -
- It is added to the deceased member’s fund credit to be disposed of under section 37C of the Pension Funds Act. Accordingly, the trustees must ensure an equitable distribution of the death benefit to the dependants, and any nominated beneficiaries if the funds are adequate. Even where a member has not completed a beneficiary nomination form or his form is outdated, the onus is on the trustees to ensure all legal and factual dependents are considered when distributing the benefit.
- It is a very efficient way for the employer to provide ancillary risk benefits to its employees as it forms part of its contributions to the retirement fund.
- The size of the fund’s membership (in an umbrella fund arrangement) often positively impacts the insurance company’s risk premiums.
- Since this is a long-standing arrangement, all parties and systems of retirement funds, employers, insurers and administrators are geared to administer this.
This practice has been in place for many, many years. NAMFISA (and its predecessor) has approved rules of retirement funds that provide these additional risk benefits for many years. Since 2021, NAMFISA interprets various Pension Funds Act sections more narrowly than before (notably sections 11(d), 5 and 10), and issued a new directive early in 2022.
The new interpretation effectively makes it impossible for retirement funds to offer these ancillary risk benefits to their members as in the past. A defined contribution retirement fund can only provide these benefits via an insurance policy. In the past, funds purchased the risk cover from an insurance company. The premium was covered by the employer’s contribution to the retirement fund.
The principle of insurance is that it provides for unforeseeable incidents and the insured must have an interest in the insured incident not happening. Insurers will always exclude fairly foreseeable incidents (e.g. an existing health condition) and incidents the insured might want to happen (e.g. suicide, or overinsuring), and impose several conditions under which the benefit would be restricted (overinsurance) or excluded (suicide). The retirement fund rules would mirror the insurance policy conditions to avoid the retirement fund having to pay a promised benefit that the insurer might not honour (e.g. suicide or overinsurance). Retirement funds can no longer mirror the insurance policy’s terms and conditions in their rules as NAMFISA believes it would contravene the Pension Funds Act.
Employers who still want to offer these ancillary risk benefits must now purchase an employer-owned insurance policy and provide the risk benefits to their employees outside of the retirement fund. This arrangement presents various concerns:
- The death benefit distribution process imposed on trustees under section 37C of the Pension Funds Act falls away. The employee completes the insurance company’s beneficiary nomination form, compelling it to pay accordingly. Should the employee exclude any dependants, they will not receive any benefits. If the employee’s nomination form is outdated, it may result in unintended consequences with severely negative social implications.
- Employers must now make two payments – one to the retirement fund and one to the insurer. Duplicate payments double the administrative effort of the payor and payee. Some employers will consider the additional effort too onerous and discontinue providing the insured benefits to their employees. Such a decision would also have a very negative social impact as most employees would not take the trouble of privately arranging an insurance policy or consider it unaffordable.
- Unlike group insurance schemes, an employee who privately arranges an insurance policy will not enjoy immediate cover without any medical requirements and would have to make the arrangements during working hours at his or the employer’s cost.
- Some group benefits are only available to groups but not to individuals.
- The benefit of scale will be lost as each employer will purchase insurance only for its group of employees.
- Employers mostly do not have expertise concerning insured benefits. Likely, the employer’s insurance arrangements will not be aligned with the pension fund arrangements and its conditions of employment. Such a misalignment could result in employees receiving a smaller benefit than the fund previously offered and employers facing employee claims.
- The current systems and arrangements are not geared for this.
Removing insured benefits from retirement funds negatively impacts the dependants of members and employees as the risk-benefit is no longer subject to section 37C. Some employees may forfeit the benefit if their employer refuses to continue providing group risk benefits.
Interestingly, the Registrar of Pension Funds in South Africa never had an issue with rules containing insurer dependent conditions and restrictions despite the Namibian Pension Funds Act being an outdated version of its South African equivalent. |
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| Important circulars issued by the Fund |
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The Benchmark Retirement Fund issued no new circular since the previous newsletter 202309 – changes to survivor annuity investments.
Clients are welcome to contact us if they require a copy of any circular. |
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| NEWS FROM RFS |
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| Long service awards complement our business philosophy |
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RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company.
In April, RFS celebrated the following anniversaries of the following exemplary staff:
- Hannes von Tonder, twentieth anniversary on 1 April 2024;
- Lizette Fourie, fifteenth anniversary on 20 April 2024;
- Desiré Kuutondokua, fifth anniversary on 1 April 2024.
We sincerely thank Hannes, Lizette and Desiré for their dedication, loyalty and support over the past so many years since joining RFS. We look forward to their contribution to the good of RFS, our clients, and our colleagues in the future!
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| The RETIREMENT COMPASS |
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RFS introduced its new RETIREMENT COMPASS newsletter as part of its social responsibility and in line with its resolve to support the retirement funds industry.
This newsletter aims to provide RFS-managed funds’ members and other parties in its network with retirement funding and related news and financial planning insights in an easily understandable manner.
Read the latest version here...
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| RFS launches RFS Financial Advisers |
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RFS launched RFS Financial Advisers (Pty) Ltd (RFSFA) on 1 April 2024. RFSFA will distribute and market financial services and products for the retail segment.
Where necessary, client contracts with RFS will be moved to RFSFA. Our team is unchanged and comprises Annemarie Nel (061 660 473) and Christina Linge (061 660 475) as intermediaries. Revena Diergaardt and Dennis Fabianus provide back-office support.
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RFSFA manager, Annemarie Nel presenting the new company’s services to RFS staff.
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The RFSFA team (FLTR) Christina Linge, Annemarie Nel, Revena Diergaardt and Dennis Fabianus |
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| RFS holds its biannual family day |
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RFS held its biannual family day on Saturday, 6 April, at the Windhoek showgrounds. Staff and their families thoroughly enjoyed this occasion, enjoying the company of colleagues in a relaxed atmosphere and forgetting the stresses and strains of everyday office life.
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Janolene and Stefanus welcome Minnie and Mickey Mouse
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FLTR Stefanus, Terrence and Vernon 'partners in crime?' |
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| RFS sponsors participants in SA swimming championships |
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RFS co-sponsored the Namibian team that competed at the SA Level 3 Age-group Swimming Championships held in Bloemfontein from 21 to 24 March 2024. The team consisted of 17 swimmers aged between 10-17 years old.
The swimmers did exceptionally well. They brought back 74 Medals: 22 Gold, 27 Silver, 25 Bronze and 2 Namibian and 1 NASFED age group records. The team placed 2nd out of 30 participating teams with 944 points. The Namibian Organising Committee and the President of Free State Aquatics complimented the Namibian team for their impeccable behaviour and fantastic performance. And, of course, RFS congratulates the team wholeheartedly on their success, splashing our beautiful national colours and making Namibia proud!
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Our team, with their sponsored towels, celebrating Independence Day on 21 March.
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Our thirteen participants with their coach at the pool. |
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| RFS rewards top performers at NAMCOL |
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RFS proudly sponsored prizes for outstanding Namcol learners who excelled in academics, offering a total of N$25,000 in cash prizes to celebrate their achievements. The winners ranged from the top achiever in accounting Grade 11 and 12 to the top overall Namcol achiever, each receiving well-deserved recognition and cash prizes ranging from N$2,000 to N$5,000. Fillemon Shilongo, the top overall and top PETE Centre achiever, raked in a whopping N$8,000 in cash!
For the past 13 years, RFS has contributed N$202,500 to this inspiring event. RFS's client manager, Leana Rickerts, was delighted to hand over the prizes and encourage the winners.
RFS is committed to promoting education and supporting the development of young people. By sponsoring these cash prizes, RFS hopes to encourage Namcol learners to strive for academic excellence and to celebrate their accomplishments when they have reached their goal.
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Leana Rickerts (right) hands over the prize to the top achiever in Accounting NSSCAS level.
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Leana Rickerts (2nd from right) and Martha Nakaambo (3rd from left) of RFS, and the prize winners. |
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| Important circulars issued by RFS |
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RFS issued no new circular since circular ‘RFS 2024.01-01 – Static Member Data’.
Clients are welcome to contact us if they require a copy of any circular. |
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| NEWS FROM NAMFISA |
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| First pension funds industry meeting of 2024 |
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In our previous newsletter, Sebastian Frank-Schultz shared his notes with our readers. In the meantime, NAMFISA also circulated its presentation to the delegates who attended the meeting. You can download it here…
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| First pension funds industry meeting of 2024 |
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NAMFISA informed all stakeholders that it uploaded subordinate legislation published in government gazette 8347 of 16 April on its website, here... It is inviting comments in the prescribed format by 20 May 2024.
- Gen.S.10.10 – Outsourcing of functions and responsibilities by financial institutions and financial intermediaries
The following is relevant to a retirement fund and its administrator:
PRINCIPAL BUSINESS THAT MAY NOT BE OUTSOURCED
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Financial institution |
Principal business function or activity |
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Insurer |
i) Assessing, determining and deciding on claims
ii) Assessing and deciding to accept or decline risk |
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Retirement fund |
i) Benefit design
ii) Admission of members/participating employers
iii) Holding of contributions
iv) Awarding, assigning, authorizing investment mandates
v) Assessing and determining claimsPayment of benefits for defined benefit retirement funds |
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Fund administrators |
Functions and duties outsourced to a fund administrator |
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Financial intermediary |
Principal business function or activity |
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Insurance broker |
Providing financial advice |
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Investment manager |
Portfolio management |
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Manager of collective investment scheme |
Operating collective investment scheme
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Nominee company |
Holding of assets on behalf of persons |
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Trustee or custodian |
Safekeeping and holding of assets (custodial services) |
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Fund administrator |
i) Functions and duties outsourced to a fund administrator may not be outsourced
ii) Providing financial advice |
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| Industry comments on proposed changes to the PFA investment regulations |
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In our previous newsletter, we provided an overview of changes affecting the fund administration. However, most proposed changes relate to fund investments.
The RFIN and NASIA, an association representing investment managers, and interested members, reviewed the proposed changes and submitted a joint response to NAMFISA. Download the industry comments here…
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| NEWS FROM RFIN |
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| RFIN’s trustee training calendar |
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The RFIN website is a valuable resource for pension fund trustees and other industry stakeholders. It will be worth your while rummaging around on it here…
If you missed the RFIN’s latest quarterly newsletter, find it here…
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| LEGAL SNIPPETS |
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| Is a death benefit payable for an incorrectly enrolled member? |
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Determination by the South African Pension Funds Adjudicator in the case of HD Auret ("complainant") v Metal Industries Provident Fund ("fund"):
Facts Undisputed by the Parties:
- Mr. GA Auret ("deceased") was erroneously registered as a member of the Metal Industries Provident Fund due to his employment with Stylestar Engineering CC from 1 July 2017 to 20 September 2020. The employer previously retrenched him in May 2016 at age 64. He was eligible for early retirement under the Fund rules, so he proceeded on early retirement. He was then re-employed by the Employer after he had turned 65, the Fund’s normal retirement age, and he and his employer started to contribute again. The Fund issued regular benefit statements after that.
- The employer and the member contributed to the fund from 1 July 2017 until the member died.
- The complainant, the deceased's surviving spouse, was initially informed of a death benefit of N$ 1,010,108 but was later told it was not payable due to a previous payout from the fund.
The complaint revolves around the non-payment of the death benefit to the complainant after the deceased's passing.
Disputed Facts:
- The complainant argues that the deceased should have received a death benefit of R1,010,108.51.
- The fund argues that the deceased received an early retirement benefit in 2016, making him ineligible for a death benefit upon re-joining the fund after the normal retirement age of 65. The fund offered to refund the member’s contributions and interest of N$141,613.
Complainant's Arguments:
- The deceased was retrenched from Coalfields Supplies and Service in 2016 and received a benefit.
- After joining the Metal Industries Provident Fund, the deceased was informed of a death benefit due to the complainant.
- Later, the fund informed the complainant that no death benefit was payable, citing fund rules.
- The complainant argues the fund should have informed the deceased he did not qualify, and the offer to repay contributions is insufficient.
Fund's Arguments:
- The deceased received an early retirement benefit in 2016.
- Fund rules state no death benefit is payable after retirement, and after a benefit has been paid, it is in full and final settlement of the fund’s obligations.
- The fund offered to pay the amount held for the deceased's estate, subject to legal requirements.
Adjudicator's Determination:
- The fund’s rules are its constitution and must be observed strictly.
- The deceased did not meet the eligibility criteria for fund membership since he re-joined after reaching normal retirement age (65).
- The fund failed to properly screen members, accepting the deceased's membership against its rules.
- The Adjudicator found the complainant's claim for damages against the fund unfounded since no contract bound the deceased to the fund's rules.
- The Adjudicator lacks jurisdiction to order damages, as established in previous cases.
- The fund is ordered to refund all contributions made on behalf of the deceased, plus interest, to the deceased's estate within two weeks.
Read the determination, here… |
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| SNIPPETS FOR THE PENSION FUND INDUSTRY |
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| The consequences of failing to pay retirement fund contributions |
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- Directors' Liability: Directors or those managing a company's financial affairs in South Africa can be held personally liable if the company fails to pay employees' pension fund contributions on time and in full.
- Legal Basis: This liability is outlined in the Pension Funds Act, regardless of a fund's internal rules. Employers must transfer all deducted member contributions to the pension fund's bank account within seven days after the end of the period in respect of which they were due.
- Identification of Liability: Section 13A(8) of the Act enables a fund to hold persons involved in managing financial affairs accountable and personally liable for non-compliance. [Editor’s comment: Although the Namibian Pension Funds Act does not have an equivalent of section 13A8, there is vast legal precedent holding trustees personally liable for failing to meet their fiduciary duties towards their pension fund.]
- Recent Case: A case was settled where the Pension Fund Adjudicator ordered company directors to pay arrear contributions after a provident fund complained about non-payment.
- Responsibility: Despite discussions and partial payments, directors and employers can be held jointly and severally liable for arrear contributions plus interest if the employer fails to identify the responsible person.
- Warning: Employers are urged to ensure timely and full payment of pension fund contributions to avoid personal liability.
Read the article by 13 Seth Thorne in Businesstech of 14 April 2024 here... |
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| What are some of the risks in the fixed-income markets? |
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The interview with Adrian Pask of PSG Wealth highlighted several risks associated with fixed-income markets and low-risk investment products. Here's a summary of the risks discussed:
1. Risks in Fixed-Income Markets:
- Volatility in Conservative Asset Classes: Even conservative fixed-income asset classes can exhibit significant fluctuations over time. For example, bonds experienced capital losses when interest rates rose.
- Inflation and Real Returns: Holding cash for extended periods might not beat inflation after subtracting management fees, taxes, and other factors. Cash poses a risk to real returns, especially in a low-interest-rate environment.
- Duration Risk: Investors need to be aware of duration risk, which refers to the sensitivity of a bond's price to changes in interest rates. Longer-duration bonds are more sensitive to interest rate movements.
- Counterparty Risk: Higher yields in fixed-income products might come from exposing assets to counterparties with more risk. Investing in lower-quality instruments increases the risk of default.
- Liquidity and Transparency: Some fixed-income products, like private debt, may have liquidity constraints and lack transparency. Investors might struggle to liquidate such investments at fair prices.
2. Risks in Low-Risk Investment Products:
- Misunderstanding Volatility: Volatility itself is not necessarily an accurate indicator of risk. Lower volatility does not always mean lower risk, especially when considering illiquid assets with low volatility due to infrequent trading.
- Reinvestment Risk: As existing assets in a fixed-income portfolio mature, reinvesting those assets into a lower interest rate environment might result in lower yields than previously earned.
- Interest Rate Cuts: In an environment of anticipated interest rate cuts, low-risk portfolios are exposed to reinvestment risk, as new investments might offer lower yields than older ones.
- Value for Money: Clients should consider the balance between risk, return, and value for money. Seeking the highest return might involve taking on more risk, which might not align with the client's risk profile.
- Complexity of Risks: The risks associated with fixed-income and low-risk products can be complicated and not always apparent. Investors should be aware of all the risks related to their investments.
- Investment Goals: It's crucial not to lose sight of financial planning goals. Understanding where growth comes from and balancing risk with returns is essential.
Conclusion and Recommendations:
- Diversification: Diversifying across different asset classes can help mitigate specific risks associated with fixed-income products.
- Seeking Advice: Investors unfamiliar with the various risks associated with fixed-income and low-risk products should seek the advice of a wealth manager. A professional can provide suitable advice in a complex investment environment.
- Balanced Approach: The recommendation is to seek a solution that balances risk, return, and value for money. Don't solely focus on chasing high returns without considering associated risks.
- Financial Planning Alignment: Ensure that investments align with financial planning goals. For example, to keep sufficient cash for short-term liabilities and to have a balanced portfolio across risk levels.
- Risk Awareness: Understanding the real risks involved, such as duration risk, counterparty risk, and reinvestment risk, is crucial for making informed investment decisions.
Read the full interview transcript in Moneyweb of 20 March 2024 here… |
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| SNIPPETS OF GENERAL INTEREST |
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| When to sell a stock |
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This article discusses the challenges investors face when deciding to sell a stock and provides guidelines and considerations for making this decision.
- Warren Buffet's Perspective: Warren Buffet famously favours holding stocks for the long term, often stating "forever". However, despite this philosophy, the article acknowledges there are valid reasons for selling a stock.
- Psychological Aspects: Generally, it is easier for investors to buy stock than sell it, as selling involves emotions like greed and fear.
- Guidelines for Selling:
- Change in Investment Outlook: If there's a significant change in the economic environment or company outlook (like inflation increasing), selling might be wise.
- Decrease in Company Growth: Slowed sales growth, changes in management, or dividend policies can be signals to sell.
- Company Acquisition: After news of an acquisition, the stock price may surge, prompting some investors to sell to secure profits.
- Rebalancing Portfolio: Selling to maintain diversification across sectors or asset classes, or to reduce concentration risk if a single holding becomes too large.
- Guidelines for Not Selling:
- Price Increase: Don't sell just because a stock's price increased. Winning stocks tend to keep winning.
- Price Drop: Don't rush to sell because the price dropped. Assess broader market movements and company-specific news.
- Company's Track Record: Look at the company's past performance in similar situations and evaluate its competitive landscape before deciding.
- Considerations after Deciding to Sell:
- Reinvestment: Determine how you will reinvest the proceeds from the sale based on your reasons for selling.
- Market Timing: Avoid trying to time the market; execute buy orders when appropriate.
- Tax Implications: [Editor: If you are an SA resident], selling triggers Capital Gains Tax (CGT), so factoring this into your decision-making is essential. Also, consider how taxes on interest income from cash solutions compare to CGT rates.
- Role of Financial Advisers: Advisers can play a crucial role in the selling process, helping investors approach transactions objectively, avoid panic selling, and decide whether to sell the total holding or a portion.
Read the full article by Wendy Myers, Head of Securities at PSG Wealth, in the Cover magazine of 4 April here… |
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| Storytelling drives bold change |
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This article discusses the challenges of driving change in organisations. It presents insights from a Harvard Business School webinar by Frances Frei and Anne Morriss on leveraging storytelling for bold change, based on their book "Move Fast and Fix Things." The authors highlight four ways to use storytelling for organisational change:
- Understand deeply and describe simply: Understanding and explaining a subject in simple terms is crucial. The test is whether others can convey the message as intended, emphasising the importance of simplicity in communication.
- Honour your past and acknowledge the good parts of your history: When driving change, it's essential to acknowledge the positives from the past. Not everything needs to change; even problematic aspects often had valid reasons initially.
- Articulate a mandate for change: The authors use Domino’s Pizza as an example, where the new CEO, Patrick Doyle, displayed customer comments on a digital billboard in Times Square to galvanise the organisation for change. This bold move created urgency and spurred action.
- Lay out a rigorous and optimistic path forward: Rigor must be paired with optimism. Optimism without rigour lacks credibility, and rigour without optimism is demoralising. The example of Ørsted, a Danish firm's transformation into a renewable energy leader, illustrates this balance.
Overall, the article emphasises the power of storytelling to drive organisational change effectively, highlighting the importance of simplicity, acknowledging history, creating urgency, and balancing rigour with optimism.
Read the full article in the Harvard Business Review magazine November- December 2023 here…
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| AND FINALLY... |
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| Wise words from wise men |
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The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being.
“Wealth does not bring goodness, but goodness brings wealth and every other blessing, both to the individual and to the state.”
~ Socrates (469 BC – 399 BC) |
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Disclaimer
Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
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